Fixed-indemnity insurance (FDI) plans are widely considered an affordable solution for out-of-pocket medical expenses. But are they really useful, and can they offer the peace of mind that comprehensive medical insurance plans do?
This guide to fixed indemnity plans aims to answer these questions by examining what they are, how they work, and what they can offer you. FDI plans differ in coverage, but they have definite pros and cons and thus may not be the right solution for everyone.
Before purchasing any insurance plan, it helps to have all the facts. So before you purchase an FDI plan, read through this guide, and you’ll soon know if an FDI plan is right for you.
What Is A Fixed Indemnity Plan?
A medical fixed indemnity plan is a type of insurance, but it is supplemental medical insurance coverage.
An FDI health insurance policy pays out a fixed amount of money, regardless of the cost of the medical treatment. And it usually pays this money to the policyholder, not the medical provider. This is the main difference between an FDI and conventional health insurance plans.
Like other forms of insurance, FDI plans are not all the same and may differ in the medical treatments and services they cover. But they typically don’t cover all the essential health benefits that ACA-compliant health plans must, by law, cover.
What Do FDI Plans Cover?
Most FDI plans will pay out a fixed cash benefit for at least one of the following:
- Hospital stays – either first-day coverage or a set number of days excluding the first day
- Intensive Care Unit stays -per day
- Surgical procedure
Not all FDI plans cover these, so always check the details before signing any purchase agreement.
In addition to the above scenarios, some FDI plans may also cover the following:
- Ambulance and/or air-ambulance helicopter transportation
- Emergency room visit
- X-Ray or other diagnostic imaging
- Conventional cancer treatments like outpatient chemotherapy or radiology
Once again, always check the fine print in your policy document. Some FDI plans don’t cover hospital stays. Others cover only a small number of outpatient procedures. Generally, the more treatments and services your FDI plan pays for, the more it will cost. But it will almost always be cheaper than any major medical health insurance plan.
Advantages Of Fixed Indemnity Plan
Despite their obvious limitations, FDI plans offer policyholders several distinct, mostly financial, advantages. This is why they are popular as a form of supplementary insurance.
- FDI plans don’t offer the coverage that ordinary health plans under the ACA do, but they are affordable. They cost only a fraction of what comprehensive medical insurance costs.
- When used to supplement a health plan, they can significantly reduce your out-of-pocket costs.
- They can be purchased year-round, unlike ACA plans, which can only be signed up for each year during the ACA Open Enrollment period.
- Some FDI plans include a preferred provider network. Using these medical providers will cost less than out-of-network providers.
- You know exactly what you’ll be paid out for in advance.
- No deductibles, copays, or coinsurance apply, while they almost always apply with other types of insurance.
Disadvantages Of Fixed Indemnity Plans
Although FDI plans offer financial advantages, they can’t be relied on as a sole source of insurance. As you’ll see from these common FDI disadvantages, they don’t offer the peace of mind that ACA-compliant health plans do.
- Because the Affordable Care Act does not govern FDI plans, they are not subject to ACA rules.
- They do not have to provide coverage for pre-existing medical conditions or the basic healthcare services that ACA plans have to cover.
- The ACA requires health plans to cap out-of-pocket costs for essential health services, but FDI plans are not governed by the ACA, so they don’t cap these costs.
- The amount paid out by an FDI plan is usually calculated on a per-treatment or per-day in-hospital basis. However, it might not cover the full out-of-pocket cost of your medical treatment.
- No prescription drug coverage.
Types Of Fixed Indemnity Plans
Other supplemental insurance plans work similarly to a basic fixed indemnity plan. The most common are:
- dental insurance
- vision insurance
- accident insurance
- critical illness insurance
Like a basic fixed indemnity plan, they offer a cash lump sum payment, paid out to you, not the medical provider.
You may then use these funds towards your out-of-pocket costs, like copays and deductibles if you wish to do so. However, the one thing they all have in common is that the amount you get paid out is predetermined and might not be enough to cover your total costs.
What Fixed Indemnity Plans Don’t Cover
Although the exact procedures and treatments FDI plans cover vary from one insurer to the next, most usually don’t cover the following. In the rare instances when they do, such coverage may be extremely limited.
- A pre-existing medical condition, for example, diabetes, heart disease, or cancer, was diagnosed or treated before purchasing the fixed indemnity plan.
- Prescription medications
- Maternity, childbirth, newborn care, or infertility treatments
- Mental health services and substance abuse treatment
- Rehabilitative and mobility aids like wheelchairs
- Preventive health screenings and general check-ups
- Immunizations and vaccines
Eligibility Requirements For Fixed Indemnity Plans
It’s not difficult to obtain an FDI plan. Usually, the only requirement is that you be between 18 and 64. You also don’t necessarily have to be a US citizen, although you may need to prove your legal resident status, income, and medical history.
However, the rules may vary depending on your state and which insurer’s FDI plan you take out. It is important to note that in states with an individual mandate for health insurance, an FDI plan alone will not qualify.
The states of California, New Jersey, Massachusetts, Rhode Island, Vermont, and the District of Columbia all require their residents to have health insurance.
A fixed indemnity plan alone will not suffice in these states as it is not an ACA-compliant medical insurance plan that offers the minimum essential coverage these mandates require.
What If I Have A Pre-Existing Medical Condition?
Remember that your medical history and pre-existing medical conditions can count against you. This is an unfortunate drawback to FDI plans that are not governed by the ACA.
You may still be able to take out an FDI plan, but it will probably not pay out when hospitalization or treatment is required for these pre-existing medical conditions.
But please don’t be tempted to conceal the fact that you have already been diagnosed with a chronic illness. Your fixed indemnity plan is a legal contract. Failure to disclose such a medical condition, if discovered, could result in you not receiving a payout.
How Much Do Fixed Indemnity Plans Cost?
On average, fixed Indemnity plans will cost up to $75 per month. This is an approximate figure, and your FDI plan could cost a little less or a little bit more. But your costs will depend on your particular plan and your insurer.
Even the cheapest ACA-compliant health plan will usually cost over $400, so an FDI is most certainly cheaper. But don’t forget that FDIs with a very low cost typically offer very limited coverage. No matter the type of insurance plans with lower premiums often offer limited benefits and coverage.
Are FDI Plans A Cheap Alternative To Medical Insurance?
Fixed indemnity plans are inexpensive and much easier to slot into a tight budget than major medical insurance. Does that mean that it’s a viable alternative to health insurance? No, and it isn’t meant to be used that way.
We don’t recommend relying solely on a fixed indemnity plan for your health care needs. It rarely covers all the costs of more complex medical procedures and extended treatments. But it can be a great supplement to your health plan if you need extra support when facing high medical expenses.
If you’re trying to save money on health care, your best bet is to start with an ACA healthcare plan that offers all essential health benefits at a reasonable price. And if the deductibles, coinsurance percentages, and copayments are higher than you’d like, supplement your ACA plan with an FDI plan.
How To Choose A Fixed Indemnity Plan
A fixed indemnity plan can be the answer if you’re looking for a good supplementary plan to enhance your existing medical plan. So, how do you choose one that’s right for you?
As with any health insurance, your first step is considering your unique situation. Ask yourself the following questions before making your purchase:
- Do you have a family that you are responsible for?
- What are your and their health statuses and health care needs?
- Does the plan you’re considering meet these needs and fit your budget?
Check that the plan you’re considering checks all the boxes! If it doesn’t, keep looking until you find one that does.
It’s not just the payout amount that will be predefined. If the plan offers a payout for hospital stays but not the first day, it will only payout from day two, possibly up to a week. If it covers surgical procedures, this will be a fixed amount per surgery and a set number of procedures.
Revisit the section above on what fixed indemnity plans don’t cover. Are you or any of your household likely to need any of these services in the coming year?
How To Enroll In A Fixed Indemnity Plan
Where To Find FDI Plans
Fixed indemnity plans are usually advertised online, along with short-term medical and other supplemental insurance plans. You can purchase them online or through an insurance broker.
Insurance brokers like Enhance Health have the expertise and experience to help you find the right plan for your needs. This is essential when you’re still unsure of the type of plan to get for your and your family’s needs.
What Personal Details Will You Have To Give?
Enrolling in a fixed indemnity plan is quick and easy. As with any medical insurance plan, you’ll be asked for certain personal details, proof of your monthly income, and basic health information. Then you’ll wait to be approved, which can take about a week or less.
Because of the sensitive nature of these details, don’t give any information or send any documents unless you’re dealing with a reputable and trusted broker like Enhance Health. Giving out sensitive information to unknown entities may make you vulnerable to identity theft or fraud.
Because fixed indemnity plans pay out to the policyholder, not the medical provider, you’ll need a bank account. You will have to provide the insurer with the account name and number. It is where your monthly payments will be made and where the FDI payouts will be sent.
As long as you continue making the payments, you’ll enjoy the benefits. But coverage is never guaranteed, and there will be dollar limits on your coverage. You can apply at any time throughout the year, even if it’s midway through the year and you already have existing medical insurance coverage.
Is fixed indemnity insurance an alternative to major medical insurance? No, it is a supplementary form of insurance. Is it right for everyone? Not really, as it usually offers limited benefits. But could it be right for you? Yes, it might be right for you if you use it to supplement your existing health insurance.
Fixed indemnity insurance will help you cover the out-of-pocket costs like co-pays, coinsurance, and deductibles that every major medical insurance plan incurs. And best of all, FDI plans are affordable and available throughout the year.
Do you want more advice about health insurance plans? Do you need expert assistance tailoring a health insurance portfolio to your needs? Contact Enhance Health today.